credit bubbles go pooof my friend
all valuations in speculative markets are covered in derivatives and credit/leverage
self-custody of a hard money cancels risky credit
self-custody of a hard money cancels risky credit
https://en.wikipedia.org/wiki/Money_burning
Smart/rich people are always betting on potential gains on the market - i.e. they are always searching for the next best investment, they key is to find out where that money is going to be parked next.
> The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy. Conversely, by raising the banks' reserve requirements, the Fed is able to decrease the size of the money supply.
https://www.investopedia.com/ask/answers/07/central-banks.as...
Have a look at the following:
> Open market operations (OMO) refers to the Federal Reserve (the Fed) practice of buying and selling U.S. Treasury securities, along with other securities, on the open market in order to regulate the supply of money that is on reserve in U.S. banks. The Fed purchases Treasury securities to increase the supply of money and sells them to reduce the supply of money. The objective of OMOs is to manipulate the short-term interest rate and the supply of base money in an economy. By conducting open market operations, the Federal Reserve can achieve the desired target federal funds rate by providing or removing liquidity to commercial banks by buying or selling government bonds from or to them.
https://www.investopedia.com/terms/o/openmarketoperations.as...
> The Fed buys U.S. Treasuries and other securities from its member banks and replaces them with credit. All central banks have this unique ability to create credit out of thin air. That’s just like printing money.
> ...
> The Fed can also reverse the effects of quantitative easing (QE). It does this by selling Treasuries and mortgage-backed securities to its banks. The Fed removes dollars from the banks' balance sheets and replaces them with these securities. What happens to the dollars? They vanish. In other words, they go back into thin air, where the Fed got them in the first place.
https://www.thebalance.com/is-the-federal-reserve-printing-m...
Another insight you can get from these articles: the Fed buys US Treasuries from the US government, also with money from thin air. So it's not really possible for the government to go bankrupt or for treasury interest rates to skyrocket, because (1) the government can always raise more money by issuing treasury bonds, (2) the Fed serves as the treasury buyer of last resort, and (3) the Fed will buy the bonds at whatever interest rate it likes. Since it's the Fed's job to keep the economy stable for the US government, it will always do this if the government needs it to.
As evidence that this structure can work, check out Japan, where national debt is currently over 250% of GDP... but interest rates are extremely low. Because Japan's central bank serves as the treasury buyer of last resort, and keeps interest rates low in service to the government.
Demurrage currency is designed to have a stable money velocity. Regular currency can simply stop circulating. I. e the fed has no control over money that is being stock piled.
I suppose the similarity depends on to whom the printed money goes?
Financial assets can disappear from a balance sheet when it becomes clear they will never be paid. That's what happens when a debt is written off. Similarly when stock drops and is marked to market.
These assets are essentially predictions of future income. Sometimes that income never materializes. The promise was broken or the prediction was over-optimistic. People discover they're not as rich as they thought.
For a cryptocurrency, the only expected future income is from other people buying when you sell. If other people aren't there to buy at the price you expected, your prediction is just wrong.
It's also the case that money velocity can always slow to a crawl. If it reaches a point where people figure they are more likely to keep value by just holding the money instead of investing it into something due to falling asset values, that can overcome even the desire to beat inflation. It's all very situational, but sometimes money doesn't get invested, or at least the rate at which it changes hands slows down due to a lack of good investments in the system.
1. The Fed: Thank you for providing resources to answer the 1st part of the question.
2. The rich: For the people who sold off stocks or real state at its peak, where are they going to park that cash next, if not speculative assets?
Those taking the money out may have liquidity needs elsewhere due to expected Fed actions, or may have lost confidence that the asset will appreciate at the rate needed to justify the investment at higher interest rates.
Just my speculation. It's interesting to think about!
Are you sure? All the stocks that got bumped during covid are now down/or on their way to pre-pandemic levels. Even FAANGs that were supposed to fuel the stay at home trend: Amazon, Netflix (-20%). Crypto might be next...
Somebody is making a killing, where will that gain go next?
There's only "more money" if you look at one side, and only one side, as "the savvy speculator" who is always looking for a new place to park the money.
The question still remains, where are they going to park these profits?
This is still true when we're talking about institutions. Some institutions profit and others lose. Cathy Wood's record is far from perfect and she is losing big time right now.